Okay, here’s your macroeconomic report for the first week of 2026.

Update for Week 01 of 2026

Date: January 2, 2026 The start of 2026 paints a complex picture of the US and global economies. While inflation shows signs of continued moderation, it remains stubbornly above target, forcing central banks to maintain a hawkish stance. The labor market, though still robust, exhibits subtle signs of cooling, and the housing market continues its slow adjustment to higher interest rates. Overall, economic growth appears to be moderating, raising concerns about a potential slowdown, but consumer spending remains surprisingly resilient. The week’s data suggests a delicate balancing act for policymakers as they navigate the path between controlling inflation and sustaining economic expansion.

1. Inflation

Inflation remains the primary concern, although recent data suggests a continued downward trend. While the pace of price increases has slowed considerably from its peak, getting inflation back to the target range is proving to be a challenge. The stickiness of certain components, particularly services, is a key factor.

  • Headline CPI/PCE: Headline CPI rose 0.2% in December, bringing the annual rate to 3.1%. Core PCE, excluding food and energy, increased by 0.1%, resulting in an annual rate of 2.9%. These figures indicate that while inflation is decelerating, it remains above the Fed’s 2% target.
  • Energy Prices: Energy prices experienced a slight rebound this week, driven by geopolitical tensions in the Middle East. Crude oil prices rose by 3%, contributing to higher gasoline prices at the pump. This volatility in energy markets adds uncertainty to the inflation outlook.
  • Food Prices: Food price inflation remains relatively subdued, with only marginal increases observed in most categories. However, adverse weather conditions in key agricultural regions pose a potential risk to future food price stability. Quote: “We are committed to achieving our 2% inflation goal. We recognize that this may require further policy adjustments.” - Jerome Powell, Chairman’s Press Conference, Federal Reserve, December 2025

2. Employment

The labor market continues to be a source of strength, but there are emerging signs that the intense tightness is easing. Job growth remains positive, but the pace of hiring has slowed, and the unemployment rate has ticked up slightly.

  • Unemployment Rate: The unemployment rate edged up to 3.8% in December, a modest increase from the previous month. While still historically low, this uptick suggests a gradual loosening of labor market conditions.
  • Job Openings (JOLTS): The JOLTS report revealed a decline in job openings, indicating reduced demand for labor. This decrease suggests that employers are becoming more cautious in their hiring plans.
  • Wage Growth: Wage growth has moderated somewhat, with average hourly earnings increasing by 4.1% year-over-year. While still elevated, this represents a slowdown from the peak wage growth rates observed earlier in the year. Quote: “The labor market is still strong, but we are seeing some signs of moderation. This is a welcome development as we seek to bring inflation under control.” - Janet Yellen, Secretary of the Treasury, Bloomberg Interview, January 2026

3. Housing Market

The housing market remains in a state of adjustment, grappling with the impact of higher mortgage rates and affordability challenges. Sales volume remains subdued, and construction activity has slowed.

  • Mortgage Rates: The average 30-year fixed mortgage rate remains elevated at 6.8%, continuing to put downward pressure on housing demand.
  • Home Sales: Existing home sales declined for the tenth consecutive month, reflecting the impact of higher borrowing costs and limited inventory.
  • Construction/Starts: Housing starts decreased in December, indicating a slowdown in residential construction activity. Builders are responding to weaker demand by scaling back new projects. Quote: “The housing market is undergoing a necessary correction. While affordability remains a challenge, we expect to see a gradual recovery as interest rates stabilize.” - Lawrence Yun, Chief Economist, National Association of Realtors, Housing Market Outlook, December 2025

4. GDP & Economic Growth

Economic growth is moderating, raising concerns about a potential slowdown. Consumer spending remains a key driver of the economy, but business investment has been more subdued.

  • GDP Estimates: The latest GDP estimates suggest that the economy grew at an annual rate of 2.0% in the fourth quarter of 2025. While still positive, this represents a slowdown from the growth rates observed in the first half of the year.
  • Manufacturing/Services PMIs: The Manufacturing PMI remains in contraction territory, indicating weakness in the industrial sector. The Services PMI, while still in expansion, has edged down, suggesting a moderation in the pace of growth.
  • Consumer Confidence: Consumer confidence remains relatively stable, supported by a strong labor market. However, concerns about inflation and the economic outlook continue to weigh on sentiment. Quote: “While the economy has shown resilience, we are mindful of the risks to the outlook. We are prepared to take further action if necessary to support sustainable economic growth.” - Christine Lagarde, President, European Central Bank, Monetary Policy Statement, December 2025

5. Monetary Policy

Central banks around the world remain focused on controlling inflation, maintaining a hawkish stance. Further interest rate hikes are expected in the coming months, although the pace of tightening may slow.

  • Interest Rates: The Federal Reserve is expected to raise interest rates by another 25 basis points at its next meeting. Other central banks are also expected to continue tightening monetary policy.
  • Fed Speak/Guidance: Fed officials have emphasized their commitment to bringing inflation back to the 2% target, signaling that they are prepared to tolerate some economic pain in the process.
  • Market Expectations: Market expectations are for interest rates to peak in the first half of 2026, followed by a gradual easing of monetary policy in the second half of the year. Quote: “We are resolute in our commitment to price stability. We will do what it takes to bring inflation back to our target.” - Andrew Bailey, Governor, Bank of England, Speech on Inflation, January 2026

Conclusion

The global economy enters 2026 at a crossroads. While inflation appears to be moderating, it remains stubbornly above target, requiring central banks to maintain a hawkish stance. The labor market is showing signs of cooling, and the housing market continues to adjust to higher interest rates. Overall, economic growth is moderating, raising concerns about a potential slowdown. The coming weeks will be critical in determining whether policymakers can successfully navigate the delicate balancing act between controlling inflation and sustaining economic expansion. The resilience of the consumer will be key, as will the ability of businesses to adapt to the changing economic landscape.